Hong Kong country brief

Overview

Hong Kong, officially known as the Hong Kong Special Administrative Region of the People’s Republic of China, is a former British territory that reverted to Chinese sovereignty on 1 July 1997. Under the principle of ‘one country, two systems’, the city enjoys a high degree of autonomy in all areas except defence and foreign affairs, for which China is responsible. The city occupies an area smaller than the Australian Capital Territory and has a population of about one-third of Australia’s. In GDP (PPP terms) it stands as the 36th-largest economy in the world.

Hong Kong is governed by the Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China (the Basic Law), passed by China's National People's Congress (NPC) in 1990. The Basic Law serves as Hong Kong's 'mini-constitution'.

Although the Basic Law ascribes formal responsibility for foreign and defence policy to Beijing, Hong Kong is allowed to conclude and implement agreements with states, regions and international organisations. It does so in areas such as the economy, trade, shipping, fishing regulation, communications, tourism, culture and sport. Hong Kong is a member of the World Trade Organization (as a separate customs territory) and the Asia-Pacific Economic Cooperation (APEC) forum.

Hong Kong’s economic growth and prosperity have been underpinned by an open trade and investment regime complemented by a highly educated and flexible workforce and a transparent legal and regulatory environment. The city has evolved into an efficient global and regional transport and trade hub. Its location gives Australian companies an important base for commercial engagement with China and neighbouring countries in Southeast Asia. Australian service providers are actively engaged in areas including banking, transport and logistics, employment consultancies, engineering, construction, aviation, architecture, accountancy, legal services, insurance, tourism and retailing.

The free movement of capital in and out of Hong Kong has accelerated the city’s development as an international commercial and financial centre. A strong institutional framework including the rule of law has attracted a number of important corporate headquarters to Hong Kong. More than 600 Australian companies, including the four major banks, have a major presence in Hong Kong. The financial sector is expected to grow further, boosted by China’s designation of Hong Kong as its offshore centre for the international use of the Renminbi (China’s currency).

Political Overview

Chief Executive

Under Hong Kong's 'executive-led' system, a form of government substantially inherited from the British colonial administration, the Chief Executive (CE) heads the government and is responsible for implementing the Basic Law and other laws of Hong Kong. The CE makes policy decisions and has the power to initiate legislation. According to the Basic Law, the CE is 'accountable to the Central People's Government and the Hong Kong Special Administrative Region'.

The CE is appointed by Beijing after election by an Election Committee, whose 1,200 members are themselves elected through a limited franchise from a number of professional, business and community bodies, Hong Kong deputies to the NPC, and Hong Kong members of the Chinese People's Political Consultative Conference. Chief Executives are appointed for a period of five years.

Mr Leung Chun-ying (C Y Leung) was sworn in as Hong Kong's third CE on 1 July 2012, having won the election on 25 March 2012. Leung's predecessor, Mr Donald Tsang, became Hong Kong's second CE on 21 June 2005, elected unopposed when Hong Kong's inaugural CE, Tung Chee-hwa, resigned mid-way through his second term citing health reasons. Mr Tsang was re-elected for a final term on 25 March 2007 in the first contested CE election since the handover.

Legislative Council

The major function of the Legislative Council (LegCo) is to enact laws; examine and approve budgetary matters; monitor the government's performance; and debate issues of public interest. The LegCo also endorses the appointment and removal of judges of the Court of Final Appeal. It cannot initiate bills involving government expenditure and so has a limited role in policy development. Its meetings are open to the public.

Legislative Council elections were held on 9 September 2012, with all 70 LegCo members elected for a term of four years. Five geographic constituencies returned 35 members by universal suffrage using a proportional representation party-list system. Functional constituencies, representing occupational and functional groups, an electoral base of less than 230,000, returned 30 members. The remaining five members were elected on a proportional basis by all the voters who did not have a vote in the functional constituencies. The electors of these five “super seats” comprised about 90 per cent of the total voting population of around 3.4 million.

Judiciary

Hong Kong's legal system is based on English Common Law. Under the Basic Law, the judiciary is independent of the executive and legislative branches of government. The Court of Final Appeal replaced the British Privy Council as the highest appellate court in Hong Kong on 1 July 1997.

China's National People's Congress Standing Committee (NPCSC) has the power of final interpretation of the Basic Law. The NPCSC has exercised this power on six occasions: concerning the right of abode (1999), universal suffrage (2004, 2007 and 2014), the term of the Chief Executive (2005) and law of sovereign immunity (2011).

As Hong Kong is Australia’s leading regional business base, we have a substantial stake in the integrity of Hong Kong’s legal system. Distinguished Australian jurists have been appointed to the Court of Final Appeal as non-permanent judges, including former Chief Justice of the NSW Supreme Court, James Spigelman, and former justices of the High Court, William Gummow, Sir Anthony Mason, Sir Gerard Brennan, Michael McHugh, and Murray Gleeson.

Political Developments

Currently no institutions of government in Hong Kong are elected through universal suffrage, although universal suffrage in Chief Executive and LegCo elections is the "ultimate aim" of constitutional development under the Basic Law. In December 2007, the NPCSC ruled out fully democratic elections for the CE and LegCo in 2012 but left open the possibility of universal suffrage-based elections for the CE in 2017 and the LegCo thereafter (2020 at the earliest).

In February 2008, the Hong Kong government established a Task Group on Constitutional Development to study options for the election of the CE and the formation of the LegCo in the 2012 elections, within the framework laid down by the NPCSC's declaration. In 2010, following public consultation, an electoral reform package was passed for the 2012 elections of the CE and the LegCo, which broadened the Election Committee for the Chief Executive and increased the number of LegCo seats, but maintained the 50/50 split between popularly elected and functional constituency seats.

In December 2013, the Chief Executive created a taskforce led by Chief Secretary for Administration Carrie Lam to oversee public consultation on methods of selection of the Chief Executive and LegCo. The consultation is the first step towards implementing the election by universal suffrage of the Chief Executive in 2017. The consultation document released by the taskforce focuses on the size and composition of the committee that will nominate candidates to be elected by universal suffrage.

On 31 August 2014, the National People’s Congress (NPC) issued a decision on the process for the 2017 CE election.Only two-to-three candidates will be allowed to stand, and each one must attract at least 50 per cent support of the nominating committee of 1200 members. Fearing an erosion of democratic liberties, in September 2014 student protest groups commenced civil disobedience campaigns throughout the city. Parties in the LegCo are traditionally divided between the Pro-establishment (i.e. pro-Beijing) and Pan-democrat (favoring greater autonomy from Beijing and greater democratic rights) camps. In the 2012 LegCo election the Pro-establishment camp won 43 seats including 17 geographic constituencies, 2 “super seats” and 24 functional constituencies. The Pan-democrat camp won 27 seats including 18 geographic constituencies, 3 “super seats” and 6 functional constituencies. As the Pan-democrat camp holds more than a third of LegCo seats, it has the power to veto constitutional changes.

Economic Overview

Hong Kong is a major international financial centre and a leading world trading entity. Hong Kong is amongst the freest economies in the world and is home to some of the region's most important corporate headquarters. In 2012, Hong Kong, with a population of around 7.2 million, topped the World Economic Forum's Financial Development Index. Hong Kong is a major provider of services to China and is the mainland's designated centre for the internationalisation of the Renminbi.

Hong Kong’s economic integration with mainland China developed through the 1980s with the establishment of China’s first Special Economic Zone in Shenzhen, across the border, transforming a fishing village into a city of over 10 million people. Investment by Hong Kong industrialists across the Pearl River Delta (PRD), arching from Hong Kong in the East through Shenzhen, Dongguan, Guangzhou, Foshan, Zhongshan and Zhuhai to Macau in the West, has been one of the main drivers of China’s rapid economic modernisation.

Since 2004, the China-Hong Kong Closer Economic Partnership Arrangement (CEPA) has accelerated integration between Hong Kong and the PRD, giving favourable treatment to Hong Kong manufactures and services. The lack of discrimination against foreign-owned companies has allowed Australian companies to benefit from CEPA and gain greater access to mainland China. Infrastructure projects such as a bridge linking Hong Kong, Macau and Zhuhai (commenced in November 2011, due to be completed in 2016) and a high-speed rail link to Guangzhou via Shenzhen (commenced in January 2010, due to be completed in 2015) are expected to improve transport links with the region.

Hong Kong’s manufacturing sector has moved almost completely to the mainland since the 1980s, and services now dominate its economy, accounting for 93 per cent of GDP. Over the past ten years, Hong Kong’s growth has been supported by the tourism industry, notably from the opening to mainland-Chinese tourists, boosting retail sales as well as hospitality and construction. The financial services sector is expected to grow further, boosted by China’s efforts to broaden the international use of the Renminbi. Australian service providers are actively engaged in banking, transport and logistics, employment consultancies, engineering, construction, aviation, architecture, accountancy, legal services, insurance, tourism and retailing.

In 2013, growth was 2.9 per cent, supported by domestic demand and inbound tourism, with export to the US and Europe remaining weak. The 2013 unemployment rate was 3.4 per cent. The underlying inflation rate, at 4 per cent in 2013, was down by 0.7 percentage points from 2012.

Forecast GDP growth for 2014 has been downgraded from 3 to 4 per cent to 2 to3 per cent, with consumer and tourist spending declining considerably. Economic growth in China will continue to provide crucial support to the regional economy, while domestically, infrastructure projects will continue to support broader economic activity. Merchandise exports, however, have grown on the back of the recovery of global trade flows.

Internationalisation of the Renminbi

Mainland authorities have undertaken a series of regulatory reforms to broaden the international use of the Renminbi (RMB – China's currency), particularly in regional trade settlement and financial products. Hong Kong has played a unique role in this strategy, first as a testing ground and now as a centre for off-shore RMB business.

Since 2004, limited RMB retail banking services have been allowed in Hong Kong, with mainland and eligible overseas banks gradually allowed to issue RMB-denominated bonds in Hong Kong. In August 2010, the People's Bank of China announced a pilot scheme to permit foreign central banks (which would include the Reserve Bank of Australia), RMB clearing banks in Hong Kong and Macau, and other authorised banks (called 'participating banks') to invest in the mainland's interbank bond market.

Starting with a pilot program in 2009, RMB trade settlement has now been extended to cover all of China. RMB can now be used for direct investment in the mainland and mainland enterprises are able to issue RMB-denominated bonds.

Hong Kong is designated as an official offshore RMB centre and has infrastructure in place to directly link its offshore operations with onshore RMB trade on the mainland, which is frequently used by other financial centres. Combined with its links to the mainland, institutional framework and regulatory environment, this provides Hong Kong with a strong competitive advantage compared with other financial centres. Since July 2013, the People’s Bank of China has also allowed cross-border inter-company lending, which is further boosting Hong Kong’s attractiveness as an off-shore RMB centre. Hong Kong is the world's largest offshore RMB centre – processing over 80 per cent of all offshore RMB payments. Other offshore RMB centres include London, Singapore and Taiwan. The estimated combined value of deposits held by banks in Hong Kong rose by 10.5 per cent from 2013 to RMB 945.0 billion at the end of September 2014.

In 2012, Australia and Hong Kong established a new high-level dialogue between respective senior business leaders to identify new opportunities arising from RMB use in trade and investment in the region.  The first Australia-Hong Kong RMB Trade and Investment Dialogue was held in Sydney (April 2013); the second in Hong Kong (May 2014); and the third will again be held in Australia in 2015.

Shanghai – Hong Kong Stock Connect

On 10 April 2014, Chinese Premier Li Keqiang announced a pilot program to connect the Shanghai and Hong Kong stock markets, implementing the two-way opening of respective capital markets. On 17 November 2014, the Shanghai-Hong Kong Stock Connect (HKEx) was launched. HKEx gives foreign and Chinese retail investors unprecedented access to the two exchanges, which may lead to it becoming the world's third largest stock exchange.

Bilateral Relations

The Australian Consulate-General represents the Australian Government in Hong Kong. In Australia, the Hong Kong Government is represented through the Hong Kong Economic and Trade Office based in Sydney. Over 80,000 Australians reside in Hong Kong and around 75,000 people born in Hong Kong now live in Australia.

People to people links

In October 2013, Hong Kong agreed to participate in the pilot phase of the New Colombo Plan. The New Colombo Plan is a signature initiative of the Australian Government which aims to lift knowledge of the Indo-Pacific in Australia and strengthen people-to-people and institutional relationships, through study and internships undertaken by Australian undergraduate students in the region. In the 2014 pilot phase, around 40 undergraduate scholarships and more than 700 student mobility grants were funded across the four pilot locations of Hong Kong, Indonesia, Japan and Singapore. In 2015, approximately 70 undergraduate students are expected to undertake study and internships in Hong Kong,

Bilateral Economic and Trade relations

Hong Kong is an important source of foreign investment for Australia, our fifth-largest, with a stock of $51.3 billion at the end of 2013. Investment sectors include electricity supply, natural gas, mining, transport, vineyards, food processing, port infrastructure, light industry, insurance, engineering, telecommunications and biotechnology. Hong Kong is also an attractive investment destination for Australia, our eleventh-largest, with a stock of $30 billion at the end of 2013. Sectors of interest include banking and finance; construction and engineering; health and medical services; telecommunications; insurance; legal services; education; information technology; consulting; logistics; and transport.

Australia and Hong Kong have a longstanding trade relationship. Hong Kong was Australia's 14th most important destination for merchandise exports ($2.6 billion) in 2013 and eighth-largest services market ($1.8 billion) in 2012-13. Two-way trade in goods and services amounted to $8.0 billion in 13. Australia's major merchandise exports were crustaceans, gold and telecommunications equipment and parts. Australia's major imports from Hong Kong were telecommunications equipment and parts, clothing and optical goods. Bilateral services trade is centred on travel (including education exports) and transport.

Trade and Investment

Hong Kong enjoys a well-earned reputation as a free and open market that allows unhindered movement of capital, goods and services. Exports to Hong Kong face zero tariffs and minimal non-tariff barriers. Hong Kong’s reputation as an international financial centre is underpinned by a highly-regarded and transparent legal and financial system.

Australia is an important source of high quality food and beverages including wine for Hong Kong's hotel and restaurant sector, particularly fresh and chilled seafood, premium fruit, nuts, vegetables and dairy products. Hong Kong's strategy to become a wine trading and distribution centre for the Asian region presents opportunities for Australian wine producers and for providers of wine-related services, such as storage and auctioning.

Hong Kong’s high standards of affluence and education have cultivated a sophisticated consumer culture and a thriving market for high-end luxury goods. This has also made Hong Kong a popular shopping destination for Chinese visitors, who are able to travel to Hong Kong in ever-increasing numbers. There are valuable opportunities for Australian businesses to showcase Australia’s products to Chinese shoppers as well as Hong Kong locals. These opportunities relate to foods, beverages, wine, fashion, jewelry, art and collectables, skincare and cosmetics, and organic and natural health products. Thus, beyond its own status as an important trading partner, Hong Kong can serve as a two-way interface between China and Australia.

Infrastructure development is a priority for the Hong Kong government, with HK$70.8 billion earmarked for infrastructure projects and capital works in 2014-15. Expansion of the public transport network in Hong Kong and the development of road and rail links to China, namely the Hong Kong-Zhuhai-Macau bridge and Guangzhou-Shenzhen-Hong Kong express rail, are driving demand for building and construction services. Development of the West Kowloon Cultural Precinct (a 15-year multi-billion dollar project) is proceeding on schedule, generating opportunities for Australian companies and suppliers, some of whom have won contracts in that project.

A number of Australian software companies have established market niches for specific corporate and government solutions. Opportunities also exist for developers of multimedia content for wireless and mobile applications and for Australian health and medical technology.

The government has earmarked HK$20 billion for the construction of several public hospitals and clinics. It is planning to build various sports facilities, including swimming pools and a velodrome. There are opportunities for Australian companies to either act individually or partner with local and Chinese companies to tender for contracts in these projects. Hong Kong is experiencing an increasing demand for aged care facilities, which presents opportunities for a broad range of Australian companies offering products and services relevant to that sector.

Given this environment, the Australian Government's strategy focuses on market development and ensuring that the business sector is aware of developing opportunities. The Consulate-General is active in helping Australian exporters and investors resolve specific problems as they arise, for instance with quarantine or customs processes.

Austrade’s Hong Kong-Macau Market Plan for 2014-15 focusses on four specific business development programs: food, beverage and consumer sectors; services and infrastructure; education; and inwards investment. Austrade has three posts covering the Pearl River Delta: Hong Kong and Guangzhou and a sub-office in Shenzhen. This network allows Australian business people to take full advantage of the increasingly integrated Hong Kong and Guangdong economies.

Information on doing business and opportunities in Hong Kong

High level visits

May 2014: Parliamentary Secretary to the Minister for Foreign Affairs, Senator the Hon Brett Mason visited Hong Kong to launch the New Colombo Plan where there is a high level of enthusiasm and interest in the program.

March 2014: Minister for Trade and Investment, the Hon Andrew Robb visited Hong Kong. Mr Robb met with his Hong Kong counterpart, Secretary for Commerce and Economic Development, Mr Gregory So, as well as current and potential foreign investors.

October 2013: Minister for Trade and Investment, the Hon Andrew Robb visited Hong Kong. Minister for Foreign Affairs, the Hon Julie Bishop, also visited Hong Kong in October 2013. Ms Bishop met Chief Executive, C Y Leung, Secretary for Education, Eddie Ng, and Gregory So. Her visit marked Hong Kong’s agreement to participate in the pilot phase of the New Colombo Plan. Mr Robb met senior Hong Kong-based investors, and his visit reinforced the value Australia places on Hong Kong as an economic partner and a leading regional base for Australian business.

June 2011: Then Hong Kong Chief Executive, Donald Tsang, visited Australia. His program in State capitals included meetings with the Premier of Victoria, the Premier of Western Australia and the Western Australian Minister for Mines and Petroleum. In Canberra he held discussions with the then Prime Minister, Minister for Foreign Affairs and Leader of the Opposition. 

Last Updated: 8 October 2014